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Development blog: Trade Growth Is Slowing; Is Protectionism to Blame?

When the financial crisis hit in 2008, many people feared that countries would respond as they had during the Great Depression and restrict imports. And as shown in the chart below, trade plunged even more deeply than economic output, but then it rebounded just as quickly. It seemed the system built after World War II to avoid beggar-thy-neighbor trade policies had worked pretty well. Certainly there was nothing like the Smoot-Hawley tariff bill of 1930 that raised the average US tariff by a third — to almost 60 percent! But more recently, trade growth slowed dramatically again and the question is why?

Protectionist measures are creeping up…

Simon Evenett, founder and coordinator of the Global Trade Alert (GTA) project, thinks we should not be too sanguine that the world avoided broad, new across-the-board trade barriers. The project monitors and reports on trade measures around the world, classifying them into those that are liberalizing and those that are discriminatory (and likely to harm other countries). In the project’s latest report, titled “The Global Trade Disorder,” Evenett points to disturbing trends in the data. He concludes that there have been three phases since the early days of the economic crisis. There was an initial upsurge in protectionist measures during the crisis, followed by a modest decline as economies recovered in 2010-11. But more recently, as economic growth has slowed in many parts of the world, the number of new protectionist measures ticked up again. 

And, because many of the previous measures have not gone away, the cumulative number of beggar-thy-neighbor measures in place is higher now than at the peak of the crisis. The European Union and India have imposed the most measures affecting the greatest number of trading partners, while China is the most frequent target (pp. 4, 66 of the report). The most recent data indicate that metals and chemicals are the sectors most frequently hit, surpassing agriculture. 

Most of the measures identified in the GTA are ad hoc duties imposed against allegedly unfair (dumped or subsidized) imports, or bailouts and other financial incentives for domestic industries, and not increases in old-fashioned tariffs. In that sense, the international trade rules are working; it’s just that the rules have weak spots. And trade growth, which was outpacing output growth before the crisis, slowed dramatically during Evenett’s third phase of crisis-era protectionism.

But how much do these protectionist policies really matter for trade?

Of course, some of the decline in trade growth is due to the lack of growth in key parts of the world. A recent VoxEU article concluded that about half the slowdown was due to cyclical factors, particularly economic stagnation in the European Union. The other half they concluded was due to structural factors, including modest increases in protection around the world. However, the article suggests this is only a small part of the problem, citing data from the World Trade Organization which shows that just over 1 percent of global imports are covered by restrictive measures:

Figure 8. Trade covered by new import restrictive measures

Source: WTO.

While Chapter 4 of the new Global Trade Alert report argues that the WTO count of new restrictive measures is too low, it is hard to believe that the “murky” protection measures captured by the GTA would change the order of magnitude of trade affected.

What are other explanations for slower trade growth?

Paul Krugman argued on his New York Times blog last year that the rapid growth of trade in the post-World War II era was due to sharply declining costs of trade. In his story, both sources of declining trade costs—post-war trade policy liberalization and the spread of shipping container technology—have largely run their course and a slowdown in trade growth is not surprising.

In an intriguing new analysis, Cristina Constantinescu and Michele Ruta, and Aaditya Mattoo, economists at the IMF and World Bank, respectively, argue that changes in supply chain trade in China and the United States are the key factors explaining the slowdown in trade growth. Notably, as China’s industrial sector matured, the share of imported inputs in China’s total exports was nearly halved from its peak of 60 percent in the mid-1990s. And in the United States, the authors conclude that the pace of offshoring and supply chain fragmentation by US companies seems to be declining.

Should developing countries be concerned?

Even if the pace of supply chain fragmentation is slowing, we are unlikely to see it reverse. So, if the slowdown in China’s trade is paired with economic reforms that shift the focus in China to domestic consumption and public goods, such as clean air, and improved health and other services, new trade opportunities could open up for other developing countries. But the growth in discriminatory trade measures documented in the Global Trade Alert is worrying. Even if the trade impact is not yet large, it comes in addition to the proliferation of regional trade arrangements that contribute to erosion in the international rules-based trade system.

So, having read the latest GTA report, I’m even more grateful that US and Indian negotiators were able to work out a compromise on food security that will let the WTO get back to work. It should never have gotten to this point, and the road ahead is by no means smooth, but willingness to reach a deal at least indicates that these two major players still do value the multilateral system. 

Authors: Kimberly Ann Elliott View Profile

Development blog: Giddy Optimism on 2015

Three big conferences next year could affect the next two decades of global development.  The first will bring world leaders to Addis Ababa in July for the Third International Conference on Financing for Development.  Next up, presidents and other assorted potentates will gather in New York at the United Nations to agree on Sustainable Development Goals for 2015–2030.  Finally, the UN Framework Convention on Climate Change will meet in Paris in December to negotiate what will follow the Kyoto treaty.  I’m increasingly optimistic about two out of three of these events, to the extent that the rather grim prospects for the third are beginning to appear a little less apocalyptic.

Going in reverse chronological order, I share the excitement over the recent US-China climate deal and what it might mean for the UNFCCC in Paris.  In my Business Week blog this week I suggest the deal gives hope that the conference could line up ambitious national targets into a global target on the year that greenhouse gas emissions will start to decline (Nigel Purvis believes it could be 2025).

When it comes to the post-2015 development agenda, I still hope the secretary-general pulls a rabbit out of the hat with his upcoming report and that it provides a compelling narrative of what the Sustainable Development Goals are meant to be for.  If he manages that, and it provokes member countries to edit and sharpen goals, there’s still the chance that the New York meetings could celebrate a powerful and useful outcome document.  But at this point, I’m not terribly optimistic.  According to this report, the UN permanent representatives from Ireland and Kenya, who are the co-facilitators of the plenary on the organization and modalities of intergovernmental negotiations and remaining issues related to the summit for the adoption of the post-2015 development agenda (a job title that is 55 characters too long to tweet) suggest that, from governments’ point of view, “the targets—but not goals—proposed by [the Open Working Group] may require ‘tweaking’” before they are adopted.  It would be nice to think that the goals are to be excluded from the tweaking because they need more than tweaking, which is itself diplomat-speak for “hacking mercilessly.” But I’m not sure that’s what they meant.

That leaves Addis.  Perhaps it will prove fortuitous that it comes before New York and won’t be infected by a sense of disappointment if the SDGs remain a bit of a mess.  There are a lot of ideas on the table at the moment, including better aid targeting; building up nonconcessional financial flows and guarantees to invest in infrastructure; using the momentum out of the G-20 on issues like tax, transparency, and illicit financial flows; getting rid of harmful subsidies and redeploying the money to more development-friendly uses; perhaps even dealing with bits of the international elements of a range of nonfinancial issues from technology though trade and the environment.  If just some of these ideas come to fruition, the Addis event will be well worth the cost of the business class airfares and conference canapés.

Overall, the US-China climate agreement and the news that the United States and India appear to have reached a compromise on customs streamlining and agricultural subsidies, meaning a WTO deal might be in the cards, suggest the environment for global deal-making going into 2015 is markedly improved.  The US administration deserves credit for its considerable part in taking poison out of the well.  Next year is a big opportunity to improve long-term global development prospects. It is nice to think world leaders might actually grasp it—or, at least, most of it.

Authors: Charles Kenny View Profile

Development blog: Payment by Results: One Size Doesn't Fit All

In recent years, donors have been making greater use of performance-based payment approaches to fund development programs. The UK Department for International Development, using the broader term being used across the UK government, has added “Payment by Results” (PbR) to the development lexicon. DFID has also stimulated the interest of its partners and contractors in PbR - whereby disbursements are made only after the achievement of agreed results - and it is signaling that it will be increasing its use of PbR programs.

Bond, the UK network of international development NGOs, is investigating what PbR means from an NGO perspective and last week released a report, Payment by Results: What it Means for NGOs .  The report makes a good contribution to the literature on results-based approaches because it looks at one subset of PbR approaches – contracts between development agencies and NGO service providers – and offers specific lessons from past experiences and guidelines for NGOs, as well as recommendations for donor agencies.

Because the Center for Global Development is viewed as an indefatigable advocate of PbR I wanted to highlight a few key points that the Bond report draws attention to, and clarify our point of view based on our work on approaches that fall under the large umbrella of Payment by Results such as Cash on Delivery Aid and Development Impact Bonds.  

All Payment by Results programs are not created equal.

Far from it. DFID’s PbR Strategy document, published last summer, acknowledges that there is no international definition of PbR and lots of different ways that programs can be designed within (at least) three broad categories of programs that fall under PbR: results-based financing or RBF (payments from funders or government to service providers), results-based aid or RBA (payments from funders to partner governments), and Development Impact Bonds, DIBs (programs that pay investors for the delivery of results). 

It is easy to think of PbR as one kind of aid program, or to confuse the alphabet soup of variations of PbR (RBA, RBF, COD, OBA, and P4R, to name a few). But the underlying theories, key features, lessons, and experiences of one approach can’t always be transferred to another. As Bill Savedoff says here, we often hear about approaches that are likened to COD Aid without paying attention to the difference between paying for activities or for outcomes. In this regard, the Bond paper does a good job of focusing on one particular category of PbR – payments from governments to NGOs for services – and of teasing out the implications of different kinds of payment triggers, shares of funding put “at risk,” and levels of the results chain at which results are defined. A PbR approach applied to NGOs is unlikely to share much in common with PbR programs focused on households or national governments. Similarly, programs in which 100 percent of funding is proportional to outputs are going to be very different from ones in which only a small portion of funding is linked to results. Each approach will have its own challenges, but, in trying to understand how and when PbR should be applied, it is not useful to treat all PbR approaches as though they are the same. 

PbR encompasses many theories of change. 

The Bond paper discusses how these design choices should affect an NGO’s decision whether to participate in a PbR program. What we have found is that the design features of a PbR program also reveal something else. They show that funders are confused about the theories of change embedded in their PbR programs. In a forthcoming paper, we distinguish four theories of change that are used by funders to justify and design their programs: (1) that the offer of a financial incentive will lead to some behavior change by the recipient; (2) that the performance funding makes results visible in a way that improves management; (3) that the focus on results will improve accountability to constituents or beneficiaries; or (4) that the agreement gives recipients more discretion and autonomy to innovate and adapt their activities. It is our sense that PbR programs are frequently criticized for relying on the financial incentive to change recipient behavior when most are actually designed to work through one of the other three channels.   

“Innovation” is not an automatic benefit of PbR.

At CGD, we have tended to focus on the fourth of these theories of change. We argue that giving ownership and responsibility to recipient countries creates space for learning, innovation, and long-term impact. The Bond paper makes a similar point about the value of flexibility in PbR contracts for NGOs … but the contract has to make that flexibility real. Our observation is that if funders pay for results instead of inputs, implementers can turn their attention to problem solving with their local knowledge and modify programs as needed to get the desired results – rather than focusing on satisfying the funder’s reporting requirements or sticking to an inflexible plan.   We have taken special interest in two forms of Payment by Results –  Cash on Delivery Aid and Development Impact Bonds – which both involve a funder paying for something at the highest possible level of the results chain (typically, a development outcome).  This matters because linking funds to the ultimate desired outcome, as opposed to specifically defined activities or even outputs, is what is expected to open up space for flexibility and innovation. (The Peterborough Social Impact Bond in the UK is one example of where we see this happening; the UK government is paying for the outcome of reduced instances of prisoner reoffending.)

But if funders think that providing discretion to the recipient is an important part of their PbR programs, we aren’t seeing much of it. Too often, funders are offering contracts that pay for results while simultaneously specifying the activities and approaches that must be used by the recipient. As the Bond report says, the risk is that implementers are attracted to PbR because of the expectation that it will give them flexibility and then become frustrated when the program’s design precludes this. Our research finds that very few programs are really testing the theory that PbR can improve results by creating greater scope for innovation because their designs continue to constrain recipient discretion. If flexibility, innovation, local ownership, and reduced administrative burdens are essential to the argument for PbR, then you can’t design PbR programs that simply add results payments on top of the requirements and restrictions of an input-funded program.

The point of any new financing approach is to try and get better results than the approaches used today. The question for CGD has always been, what kind of funding mechanism would actually make possible the kind of learning, adaptation, country ownership, accountability, and results focus that we know are important for development? Like the authors of the Bond paper, we believe that PbR “has a place in the portfolio of funding mechanisms available to tackle development problems,” and we think the cautions they present should be heeded and considered. But in terms of building evidence on the effectiveness of such programs, we will have to see PbR programs that actually make space for innovation before we will have experiences to assess and from which to learn.  

Authors: Rita Perakis View Profile William Savedoff View Profile

Social Networking Popular Across Globe

Many global publics use social networking sites to share their views on popular culture. Expressing opinions about politics, community issues and religion is particularly common in the Arab world.

Social Networking Popular Across Globe

Many global publics use social networking sites to share their views on popular culture. Expressing opinions about politics, community issues and religion is particularly common in the Arab world.

Men, College Educated Are the Most Engaged Mobile News Consumers

While young people are much lighter news consumers generally, they get news on mobile devices as much as older users do. They also prefer a print-like experience when getting news through mobile apps.

U.S.-China Economic Relations in the Wake of the U.S. Election

The U.S. public wants Washington to ratchet up the pressure on Beijing, but history suggests that there are geo-political constraints to doing so.

11.1 Million Unauthorized Immigrants Were Living in the U.S. in 2011

RSS Source: Pew Research - Immigration - December 6, 2012 - 1:00am
The number was unchanged from the previous two years and a continuation of the sharp decline in this population since its peak in 2007.

Visualizing the Future of Mobile News

See a selection of infographics presenting data from The Project for Excellence in Journalism's Future of Mobile News report. The infographics are the result of a designer challenge issued by PEJ in collaboration with The Economist Group and data visualization website Visual.ly.

Anti-Americanism Down in Europe, But a Values Gap Persists

While Europeans reacted to President Obama's re-election with a mixture of excitement and relief, his presidency has not closed the long-running transatlantic values gap in areas such as use of military force, religion, and individualism.

The Best and Worst of Mobile Phones

Mobile phone owners like the convenience and ease of connectivity the devices offer, but rue that they can be interrupted more easily, have to pay the bills, and face bad connections.

Decision-Makers in the Dock: How Trials, Human Rights Advocacy and International Law are Shaping the Justice Norm

RSS Source: New Global Studies (Journal) - November 29, 2012 - 7:46am

The mid-1980s marks the start of what has become a rapid shift towards new norms and practices of providing more accountability for human rights violations through the use of trials. This dramatic increase in human rights prosecutions is the direct result of the activism of the human rights movement. The increase in trials in turn has aided the development of international criminal law and has promoted the formal institutionalization of new accountability standards for international organizations. This article traces the emergence and diffusion of the justice norm. Then using two sets of case studies it examines how international law and human rights activism have interacted to create new opportunities for domestic prosecution in Argentina and the process through which the United Nations came to adopt formal standards on prosecutions and amnesties.

Counter-Elites Swimming Up-Stream: The Challenge of Pursuing a Political Rights Agenda where Economic Rights Trump

RSS Source: New Global Studies (Journal) - November 29, 2012 - 7:46am

The most recent spate of ‘democratic revolutions’, ushering in the fourth wave of democratization, seems to lend support to those advocating for the primacy of political and civil rights, over economic, cultural and social ones, in the human rights framework. In this article, I challenge that idea, arguing instead that the most recent regime changes, like so many that have preceded them, were, if anything, more about economic rights than political ones. I reassess not only the most recent ‘revolutions’, but also those that took place over the course of the 20th century, showing commonalities among the human rights goals of communists, anti-communists and contemporary pro-democracy leaders. By framing these various revolutionaries as human rights agents, and mass publics as their allies, this article is designed to engage readers in a debate about what, if any, sorts of rights truly hold primacy. The difference between today’s pro-democracy leaders and yesterday’s communist ones rests on the perceived international legitimacy of the democratic template. Yet all of these leaders, I argue, have essentially struggled for political change not as an end, but as a means to improved economic rights.

Stigmas and Memory of Slavery in West Africa: Skin Color and Blood as Social Fracture Lines

RSS Source: New Global Studies (Journal) - November 29, 2012 - 7:46am

The campaign and eventual abolition of the African slave was momentous on several levels, not least for its impact on the global economy. In Africa itself, it brought about constant conflict. This article traces the ambiguities of the anti-slavery struggle on the part of the colonial powers, with a main emphasis on French colonies. It then proceeds to explore the legacies of slavery in several of these societies before reaching some broader conclusions about the contemporary discourse of legitimacy and memory.

The History of Human Rights: The Big Bang of an Emerging Field or Flash in the Pan?

RSS Source: New Global Studies (Journal) - November 29, 2012 - 7:46am

This article explores the emerging historiography of human rights. After reviewing the current emphasis in the literature on the origins of human rights, the essay inquires into possible futures of this nascent historical field. What might scholarly interest in more unified frames of knowledge that bridge the natural and the cultural realms mean for future historiographies of human rights?

International Law and Human Rights: Diverging and Converging Histories

RSS Source: New Global Studies (Journal) - November 29, 2012 - 7:46am

This article explores ways to think about the historical intersections of international law and human rights visions and principles in a global context. It catalogues an intertwining of new historiographies, notably the recent convergence of research interests of historians and international lawyers that draws attention to non-linear analyses; the role of social movements in understanding developments in the law; and the importance of historical contexts for interpretation. It sketches one promising analytical framework to assess the dynamic interconnections of international law and human rights from the mid-nineteenth century through the formal creation of the human rights system under U.N. auspices between 1945 and 1949. It concludes with a case study of gender tensions in more recent human rights global politics to provide historically-specific examples of the new possibilities of bringing historical interpretations to the study of international law and human rights.

NGOs and Development Reconsidered

RSS Source: New Global Studies (Journal) - November 29, 2012 - 7:46am

The remarkable rise in the number of nongovernmental organizations (NGOs) worldwide during the 1980s and 1990s has led to the need for a sober reassessment of their role in development. By the late 1990s, the NGOs’ earlier celebration as the “magic bullet” for achieving development objectives was replaced by a number of questions concerning their legitimacy, accountability and transparency, and ultimately their ability to effectively reduce poverty in developing countries. The present paper readdresses this set of questions and attempts to provide some answers based on studies conducted over the past ten years. In this context, we found that marginal improvements in the NGO impact at the country program level can be recorded. Other issues, however, remain unresolved. Finally, we offer a number of suggestions enabling these institutions to act more effectively as contributors to development. Overall, our findings suggest the need to take off our rose-colored glasses and adopt a more realistic view.

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